Unexpected drop in euro zone output clouds recovery hopes further

Otput at factory gates in the euro zone fell 0.3% on the month in June

Euro zone industrial production contracted unexpectedly for a second month in a row in June, data showed today.

The new figures further dented hopes of a stronger recovery as the bloc starts to take the hit from conflict in Iraq, Ukraine and Gaza.

Output at factory gates in the euro zone fell 0.3% on the month in June after a 1.1% drop in May. This compared to market expectations of a 0.3% rise.

When compared with the same time last year, production was flat, following an upwardly revised 0.6% rise in May, while economists polled by Reuters expected a 0.1% annual increase in June. It was the lowest annual reading since August 2013.

The monthly drop was due mainly to a 1.9% drop in production of non-durable consumer goods - down for a second consecutive month - and a 0.7% fall in energy production, which was up in the previous three months.

Economic recovery in the €9.6 trillion economy is struggling to gain momentum a year after exiting a recession, throttled by a combination of high unemployment, sluggish reform and the fallout from conflict in Ukraine, Gaza and Iraq.

The latest sign of just how fragile the euro zone's economic rebound remains came from Germany earlier this week where investor sentiment nosedived to its lowest since December 2012 on what impact European sanctions against Russia will have.

Eurostat will publish the second quarter economic growth flash estimate tomorrow. Economists expect an expansion of 0.2% on the quarter in the three months to June, the same pace as seen in the first quarter.

While the euro zone's three largest economies saw production rising on the month in June, Germany's industrial output fell 0.4% year-on-year in June in the country's first annual drop since July 2013.

Its second biggest economy, France, saw flat output on the year in June, its best performance since December. Meanwhile, Italy's industrial production rose by 0.4% in June after a 1.7% decline in May.

Much stronger expansion, a scenario not seen as likely any time soon, is needed to spur job creation and rejuvenate countries choked by austerity and the legacy of recession.

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